REIT performance and investment activity showed strong gains during the first quarter, with both coastal and Sun Belt REITs reporting that first-quarter financial and operational performance exceeded expectations thanks to strong demand and favorable wage growth.
Many Sun Belt markets continue to recover from the recent supply wave, which has caused investment strategies to focus on operational improvements and competitive amenities, according to a RealPage analysis of REIT Q1 earnings calls. Meanwhile, Coastal REITs are more aggressively focused on expanding investment volume and development starts.
AvalonBay Communities, which focuses primarily on coastal markets, reported modestly higher occupancy and lower available inventory compared with last year. Another coastal-focused REIT, Essex Property Trust, reported performance that exceeded expectations for the first quarter, including stronger same-store property revenue growth, higher co-investment portfolio net operating income and favorable interest expense. The firm said blended net effective rent growth was 2.8% and delinquency rates significantly improved, particularly in Los Angeles.
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Equity Residential, which traditionally focuses on coastal markets but has been expanding into the Sun Belt, reported robust demand supported by favorable supply-demand dynamics in rental housing. The firm said it achieved record-low resident turnover of 7.9% and physical occupancy of 96.5% across its portfolio, with particularly strong market performance in New York, Washington, D.C., Seattle and San Francisco.
Camden Property Trust, focused primarily on Sun Belt markets, said new supply has peaked and starts are at a 13-year low. Same-property revenue grew 0.8% during the first quarter and leasing activity improved, driving occupancy up slightly to 95.4%. Its top-performing markets include Tampa, Los Angeles/Orange County, San Diego, Washington, D.C., and Houston.
MAA reported strong demand in occupancy, collections and pricing trends, with average effective rent per unit dropping only $9 compared to a year earlier.
UDR said it logged stronger-than-expected same-store revenue, expense and net operating income growth. The firm’s blended lease rate growth was 0.9% from last year and annualized resident turnover was 32%, a decade low.
RealPage’s analysis found most REITs are increasing investment activity along with the broader multifamily sector during the first quarter, buoyed by lower vacancy and higher rent growth. AvalonBay, for example, is targeting a $3 billion development pipeline and plans to commence $1.6 billion in development starts in 2025, with a focus on suburban submarkets and expansion regions. Essex made $345 million in acquisitions during the first quarter in Northern California and Equity Residential reaffirmed its 2025 guidance for purchases and dispositions of $1.5 billion and $1 billion, respectively.
Investment activity was more subdued in Sun Belt markets, but coastal REITs are increasingly diversifying into these markets as supply levels wind down, according to RealPage. Camden is “targeting $750 million in acquisitions and dispositions to optimize its portfolio," and MAA made $67 million in development investments during the first quarter with plans to fund an additional $305 million over the next two to three years. UDR completed the sale of two communities in the New York metro area for $211.5 million and initiated development of a new project in Riverside.
Most Sun Belt REITs are projecting a return to rent growth in the third quarter, said RealPage.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
